A parliamentary inquiry will examine confidential cabinet documents which reveal the NSW government rejected advice about a light rail route into Newcastle in favour of one that may cost about $100 million extra and gives more opportunity to property developers.

The NSW upper house inquiry, into planning in Newcastle, may also consider what influence disgraced former local Liberal MP Tim Owen had in the decision after further revelations that the documents were found in his vacated electorate office.

On Tuesday, Fairfax Media revealed that Transport for NSW advised the cabinet infrastructure committee in December 2013 that its preferred light rail route was along the corridor for the heavy rail line that was to be ripped up as part of a Newcastle revitalisation plan.

But in May 2014 - following consultation with government property developer UrbanGrowth NSW - it was announced the new line would only use a small part of the corridor before diverting along the thoroughfare of Hunter Street.

Advertisement

Former Newcastle MP Tim Owen.

This is despite Transport for NSW's advice to cabinet that running light rail down Hunter Street - as advocated for by local developers - would mean a slower service, disruption of traffic and higher construction and heavy rail corridor remediation costs.

The cost of the chosen route may also be as much as $94 million more than Transport for NSW's preferred option, the documents suggest.

Christian Democratic Party MP the Reverend Fred Nile - chair of the upper house inquiry into the Newcastle planning process - has requested a copy of the cabinet documents for its consideration.

Reverend Nile said he was "pretty angry" at the revelations, and questioned the government's plans for the corridor.

"There could be high rise towers put on it as it's the only land not affected by mining subsidence," he said.

The inquiry was established following last year's Independent Commission Against Corruption hearings into illegal political donations.

The hearings saw then Newcastle MP Tim Owen resign from parliament in August after lying about taking $10,000 cash before the 2011 election from developer and then lord mayor Jeff McCloy.

It can be revealed that the confidential cabinet documents were found in Mr Owen's electorate office by Labor after it won the Newcastle byelection sparked by Mr Owen's resignation from parliament.

Labor's Transport spokeswoman Penny Sharpe said there were "serious questions why a backbencher, Tim Owen, had access to these cabinet documents".

"Who else had access to these documents and was there collusion with developers to ensure that the transport advice was ignored?" she asked.

Inquiry deputy chairman David Shoebridge said how Mr Owen came to have the material and whether he had any influence in the final decision about the light rail route "are questions that immediately arise".

In the Hunter Valley on Tuesday, Premier Mike Baird labelled as "conspiracies" claims the route was selected to favour the interests of the developers.

But Transport Minister Gladys Berejiklian would not say if she discussed the route with Mr McCloy.

"I'm not going to get into the ins and outs across government, all I want to say is that as a government we did what is in the best interests of the community," she said.